There are several ways to serve your clients in the financial planning world. No model is wrong or right, but there are some that may work better than others depending upon the makeup of your firm.

For example, if your goals include maintaining control over the client relationships and being certain that all advice given is co-ordinated, holistic, independent and dispensed with your seal of approval, then a comprehensive model will work best. If your goals are to make more money through referral fees or loose relationships where you are dishing off most of the work and client relationship, then another model would work better.

I believe that the latter is a bit short-sighted and see that relationships with larger, better clients are stronger when the CPA financial planner retains accountability for the planning and implementation. Trends among the most successful advisors and CPAs include doing more for fewer clients under the model of comprehensive wealth management services, rather than investment advice or insurance services as a single offering.

There are two broad considerations when evaluating your options. First is the service model, with many options available to you. Second is your compensation and revenue model, with three distinct methods to profit from these valuable services.



On the service side, let me start with my least favorite way of serving your clients in the financial planning space. This would be with a referral relationship. Referring your clients to another planner, advisor, broker, etc., is a sure way to tell your clients that you are not interested in serving them in this capacity.

To me, this is about as bad as it gets, especially if you are sharing in compensation from that advisor or receiving referral fees. First of all, what exactly are you doing for your referral fee? Some states won't even allow it due to its suspicious nature. Is the referral because that professional is truly the best at all of the major areas of planning, or simply the one with the most referrals back to you or the richest compensation-sharing program?

Another significant limitation of this method is the complete loss of control. If your referral partner has changed firms, you must go along with that partner's choice of new firms if you want your compensation stream to continue. Even worse, if the advisor's new firm does not allow referral relationships or you do not want to be involved with the new firm, your referral revenue immediately sinks to zero. In effect, you have no control over any changes and are not likely to benefit financially from the switch.

Last and maybe most significant under the referral model is that your clients may view themselves as clients of that advisor, more so than of your firm.



The second model we'll discuss is building it yourself. This can be an expensive and time-consuming way of finding success in the financial planning world. Larger firms have a greater likelihood of prosperity from building the practice from scratch. They have both the capital and the client base to absorb the huge costs for registration, compliance, technology and human capital. For firms like this, starting the practice will either be the best business initiative that they've ever undertaken or the beginning of the firm's divorce, with the PFP partners eventually leaving in disgust over the apathy of the non-PFP partners.

If you decide to build, make sure that you have a very thorough business plan and that you have the commitment from all partners to support this division as they would audit, tax or any other significant service area.



Perhaps a better alternative to building from scratch is to acquire a practice that meets your specifications. The specs that are important include the target firm's culture, team and client base. Many planning firms are dominated by the leader/owner, and frequently thin on quality staff. If this is the building method that you choose, think about looking for a practice that has an associate wealth advisor, a good administrative person and well-documented systems and processes. You want continuity in the servicing of the acquired clients and to acquire subject matter expertise that you feel is important in your practice.

Don't get caught up in the size of the firm's assets under management. While that is indeed an indicator of future revenues and their client profile, it does not always translate well into a holistic, well-rounded planning practice. Clients are more loyal to a firm that services more areas of their personal financial lives, rather than simply the commoditized asset management side. You would not want to acquire a firm whose clients are not matched up well with the profile of the CPA firm client base. It may also be ideal if your target candidate is looking for a succession plan now that includes a three-to-five-year transition period.



The next model would be to affiliate with an existing planning firm that has experience working with CPA firms. In my opinion, this is the best way for most firms to successfully compete in PFP. And within the world of potential affiliation partners, there are different models. You can affiliate with some firms and run your PFP practice yourself, serving all clients within the confines of existing firm personnel. On the other extreme, you may also affiliate with a firm that will permanently assign you a competent, like-minded professional or have one available to work with you on an as-needed basis.

Most CPA firms in the U.S. are small firms, with a few partners or less. Yet when it comes to PFP affiliations, many firms feel that bigger is better and choose to affiliate with very large organizations. It's a good thing that your firm's clients don't feel that way or you'd spend half of your time marketing. What matters most is how much attention you'll get from your affiliation partner, their ethics, and the quality of the firm's offering in the areas of practice management, marketing and communications, compliance, and technical support.

Affiliations do not have to be permanent. Financial services firms change, CPA firms change, and the CPA firm's vision for its success changes. In fact, sometimes it takes an affiliation that turns out to be something unlike what you had hoped for to recognize what you really want and need from an affiliation partner. If your revenue from financial planning services does not match that of your tax department, then you should consider the reasons why. Is it an ineffective affiliation, or is your firm not following the practice management advice that it is receiving?



As we shift over to the compensation side of the equation, there are three distinct models: firms that work on a fee-only basis; hybrid firms that charge fees and earn commissions; and firms that only earn commissions.

The last choice, commission-only, is a waning model. The appeal of a commission-only business may be fading in the culture of compliance and transparency in which we live. The concept of advisors acting as a fiduciary is gaining momentum, and hopefully here to stay. The fiduciary standard is a tremendous step toward helping professionals run an ethical practice and helping clients to make informed choices. That doesn't mean that commissions will disappear entirely from the financial planning landscape, but it does mean that advisors will need to disclose all conflicts of interest, including the compensation received from product manufacturers as a result of implementation activities.



For years, the fee-only method was the fastest-growing segment of the planning business.

Fee-only advisors only receive compensation in the form of fees charged to clients. These fees are typically delivered on a fixed or hourly fee basis for planning activities. For asset management or portfolio oversight services, fees are commonly tied to a percentage of the assets overseen by the advisor or done on a fixed-fee basis. I started as a fee-only planner, and found great success in the early days of my CPA firm simply by touting our independence and objectivity.

In practice, however, relationships where the compensation is received from assets under management frequently morph into an investment-only relationship, and the holistic planning may take a back seat. I'm sure that this was not their intention, but over time the service model has morphed largely in that direction for many practitioners.

I have a few concerns with this. First, I wonder if the average advisor, fee-only or otherwise, really can be a great asset manager. Asset management is a full-time business, and unless your practice is very small, it is nearly impossible to do a great job as an asset manager and be a holistic and proactive financial planner.

Another observation of fee-only planners is that many have an aversion to insurance. Fee-only planners commonly bash annuities and insurance products, and consequently I've seen many clients move from fee-only planners when they learned that they were underinsured or not taught about the income benefits of annuities.



The last model, which has recently surged in popularity, is called the hybrid model, or one in which the advisor charges fees and may also receive commissions. Hybrid advisors have both securities licenses and an affiliation to a registered investment advisor. Many also obtain insurance licenses. At first, many CPAs cringe at the thought of selling insurance, but it just takes one client who was oversold or underserved by a life agent for them to realize that they could have done a better job themselves. An American Institute of CPAs study of business-owner clients from the late 1990s found that 86 percent of business-owner clients would prefer to buy their life insurance from their CPA than from a life insurance agent.

The challenge for the hybrid advisor is the inherent conflict of interest when recommending products that will pay commissions to the advisor. I believe that hybrid advisors should act in a fiduciary capacity, and as such be independent, objective and provide a duty of care to their clients to examine the entire marketplace of products and recommend those that are most appropriate. This conflict is best handled when the advisor discloses all compensation that may be received and also by alerting the client about other outlets for such products, including other advisors or sales organizations.



Financial planning and wealth management is a higher calling than merely offering accounting and tax services. Clients want the advice from someone they trust and they are willing to pay for the advice. Your firm will benefit from the profitability that a mature wealth management practice can bring.

There is no easy answer regarding the best model for your firm. But whichever model you choose, choose to be great at it. Choose to be great for all of your stakeholders -your clients, your firm, and your family and friends.


John Napolitano, CFP, CPA/PFS, is chairman and CEO of U.S. Wealth Management, in Braintree, Mass.

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